Institute of Rural Management Anand (IRMA)

Operations Management

PGDM (RM) – 44

Term-

Submitted To: Prof. Ruchi Mishra

Title : “Operations IKEA”

Submitted by :

Section : A
Group No. : Group No. 10

Sr. No. Student Name Roll Number

1 Binit Kumar Shaw p44013
2 Upendra Guru p44020
3 Saiyam Shekhar p44045
4 Shashank Arya p44047
5 Sonali Meshram p44052
Title: Activity Mapping of IKEA

1. Introduction
A 17-year-old in rural Sweden, peddling pencils and picture frames from his bicycle. That's
where the remarkable story of IKEA begins, in the mind of Ingvar Kamprad, who in 1943
planted the seed of what would become a global furniture empire.
Kamprad's vision was simple: bring stylish, affordable furniture to the everyday person. It wasn't
just about selling tables and chairs; it was about democratizing design, making comfortable
living accessible to all. This core philosophy, deeply rooted in Swedish practicality and
resourcefulness, would shape IKEA's journey every step of the way.
From Mail Order to Mega-Warehouses:
IKEA's early years were humble. Starting as a mail-order business, it soon expanded into
furniture, initially sourcing from local craftsmen. The now-iconic flat-pack design emerged in
the 1950s, a stroke of genius that reduced shipping costs and revolutionized furniture assembly.
By the 1960s, IKEA's first stores were taking shape, sprawling labyrinths of self-service
furniture heaven. The showroom concept, where customers could wander through pre-furnished
rooms and envision possibilities, was another game-changer. It wasn't just about selling
furniture; it was about selling a lifestyle.

2. Strategy Identification
2.1 Overview of IKEA's Business Strategy
IKEA, the Swedish behemoth of home furnishings, wasn't built on extravagant designs or sky-
high prices. Its success lies in a meticulously crafted business strategy focused on affordability,
efficiency, and customer experience. Let's delve into the key pillars of this winning formula:
1. Democratizing Design: IKEA's core mission is to make stylish furniture accessible to the
masses. This translates to minimalist, functional designs that prioritize practicality over frills.
Flat-pack packaging further lowers costs and simplifies transportation, keeping prices down for
consumers.
2. Cost-Conscious Maestro: Every aspect of IKEA's operations is geared towards cost reduction.
They own and operate a large part of their supply chain, controlling quality and minimizing
outsourcing costs. Mega-warehouses strategically located near ports optimize distribution and
inventory management.
3. Self-Service Shopping: IKEA encourages active customer participation. From browsing
showrooms to assembling furniture, customers become part of the value creation process. This
reduces labor costs and allows for a streamlined, self-directed shopping experience.

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4. The Showroom Experience: IKEA stores are more than just warehouses; they're interactive
living spaces. Pre-furnished rooms inspire customers, showcasing product combinations and
functionality. The iconic meatballs and complimentary coffee add a touch of hospitality, turning
a shopping trip into a memorable experience.
5. Embracing Sustainability: IKEA recognizes the importance of responsible sourcing and
production. They invest in sustainable forestry practices and use recycled materials. This aligns
with their cost-efficiency goals and attracts environmentally conscious consumers.
Beyond Affordability: While affordability is a cornerstone, IKEA doesn't stop there. They
constantly innovate and adapt to meet changing consumer preferences. From smart home
integrations to modular furniture solutions, they stay ahead of the curve, offering stylish and
functional options for modern living.
Challenges and the Future: Competition in the furniture market is fierce, and IKEA faces
increasing pressure from online retailers and budget-conscious competitors. Adapting to
evolving consumer demands and balancing affordability with sustainability will be critical for
their continued success.
IKEA's business strategy offers valuable lessons for businesses across industries. Its focus on
efficiency, cost-reduction, and customer engagement demonstrates how a well-designed strategy
can be a powerful competitive advantage. So, the next time you wander through an IKEA store,
remember: you're not just browsing furniture; you're witnessing a masterclass in business
strategy in action.

2.2 Core Competencies of IKEA

IKEA's competitive edge thrives on three fundamental strengths:
 Cost Leadership: IKEA reigns supreme in cost optimization. From owning a significant
portion of its supply chain to utilizing flat-pack designs and self-assembly solutions, it
minimizes production and distribution costs, translating to lower prices for customers.

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  Operational Excellence: IKEA's operations are a finely tuned machine. Mega-warehouses
strategically located near ports ensure efficient inventory management and distribution.
Standardized product designs and streamlined assembly processes further enhance
operational efficiency.
 Customer Experience Maestro: IKEA understands the power of experience. Its
showrooms are more than just display spaces; they're curated living environments that
inspire customers and showcase product functionality. The self-service shopping model
empowers customers and creates a sense of ownership, fostering brand loyalty.
2.3 Key Success Factors Supporting Strategy Execution
IKEA's strategic execution flourishes due to several key factors:
 Innovation: IKEA constantly innovates, from modular furniture solutions to smart home
integrations, catering to evolving consumer preferences and staying ahead of the curve.
 Sustainability: IKEA prioritizes responsible sourcing and production, utilizing recycled
materials and investing in sustainable forestry practices. This aligns with cost-efficiency
goals and attracts environmentally conscious consumers.
 Global Expansion: IKEA leverages its international presence to leverage economies of
scale, optimize sourcing, and tap into new markets, further strengthening its competitive
position.
 Strong Brand Image: IKEA has cultivated a strong brand image synonymous with
affordability, functionality, and a unique shopping experience. This fosters customer
loyalty and brand recognition.

2.4 Strategy Map

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To visualize IKEA's strategic direction, let's map its objectives across four key perspectives:
 Financial Perspective: Maximize shareholder value through increased profitability,
revenue growth, and cost optimization.
 Customer Perspective: Enhance customer satisfaction by offering affordable, functional,
and stylish furniture solutions, coupled with a positive shopping experience.
 Internal Process Perspective: Continuously improve operational efficiency through
supply chain optimization, standardized processes, and innovation in product design and
assembly.
 Learning and Growth Perspective: Foster a culture of innovation and sustainability, invest
in employee training and development, and adapt to changing market trends.

3. Implementation of Strategy
3.1 Operational Execution
3.1.1 Supply Chain Management
3.1.2 Production Processes
3.1.3 Inventory Management
3.2 Key Success Factors in Strategy Implementation
3.2.2 Technological Integration

3.1 Operational Execution:

3.1.1 Supply Chain Management:

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  Vertical Integration: IKEA owns and operates a large portion of its supply chain,
including forests, sawmills, and factories. This tight control ensures quality, reduces
costs, and allows for agile adjustments to production and demand.
 Strategic Partnerships: IKEA collaborates with trusted suppliers for specialized
components, leveraging their expertise and economies of scale.
 Global Network: Strategically located mega-warehouses near ports optimize distribution
and inventory management, minimizing transportation costs and ensuring product
availability.
 Demand Forecasting: Sophisticated forecasting models predict future customer needs,
allowing for optimized production schedules and reduced inventory waste.
3.1.2 Production Processes:
 Standardized Product Design: IKEA focuses on modular, functional designs that are easy
to manufacture and assemble. This simplifies production processes and reduces material
waste.
 Flat-Pack Revolution: Flat-pack packaging minimizes transportation costs and storage
space requirements, further lowering prices and environmental impact.
 Automated Manufacturing: IKEA heavily invests in automation and robotics, improving
efficiency, consistency, and worker safety.
 Just-in-Time Production: Minimizing finished product inventory and producing closer to
demand reduces storage costs and avoids obsolescence.
3.1.3 Inventory Management:
 Centralized Management: A centralized inventory control system tracks stock levels
across all stores and warehouses, facilitating efficient allocation and replenishment.
 ABC Analysis: This method prioritizes inventory management based on product value
and demand, focusing resources on critical items.
 Safety Stock: Maintaining a predetermined level of safety stock for key items mitigates
the risk of stockouts and ensures customer satisfaction.
 Cross-docking: Directly transferring goods from inbound to outbound trucks at
distribution centers eliminates unnecessary storage and handling costs.
Activity Mapping of IKEA Operations:
 Inbound Logistics: Supplier relationships, raw material transportation, and initial quality
checks.
 Production: Sawmilling, component manufacturing, furniture assembly, packaging, and
quality control.
 Outbound Logistics: Warehouse storage, distribution center operations, and
transportation to stores.
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  Retail Operations: Showroom layout, self-service shopping experience, inventory
management, and assembly assistance.
 Customer Service: Post-purchase support, returns and exchanges, and product warranty
management.
3.2 Key Success Factors in Strategy Implementation:
3.2.2 Technological Integration:
 Supply Chain Visibility: Real-time data tracking across the supply chain enables
proactive problem-solving and optimized inventory management.
 Warehouse Automation: Automated robots manage inventory in mega-warehouses,
significantly increasing efficiency and accuracy.
 E-commerce Platform: A seamless online shopping experience allows customers to
browse, purchase, and track orders with ease.
 Smart Home Integration: IKEA integrates some furniture with smart home technologies,
catering to modern consumer preferences.
 Data Analytics: Analyzing customer behavior and sales data informs product
development, marketing strategies, and operational efficiency improvements.
Benefits of Technological Integration:
 Reduced Costs: Automation and data-driven decision-making minimize waste and
optimize resource allocation.
 Improved Efficiency: Real-time data and streamlined processes enhance responsiveness
and agility throughout the supply chain.
 Enhanced Customer Experience: Online shopping, product customization, and smart
home integration cater to diverse customer needs.
 Sustainability: Data analysis aids in optimizing production processes and resource
utilization, minimizing environmental impact.

4. Operational and Supply Chain Issues

4.1 Current Operational Challenges in IKEA
4.1.1 Production Bottlenecks
4.1.2 Quality Control Issues
4.2 Supply Chain Issues
4.2.1 Logistics Challenges
4.2.2 Supplier Relations
4.1 Current Operational Challenges in IKEA:
4.1.1 Production Bottlenecks:
 High reliance on single sourcing: IKEA often sources key materials from a limited
number of suppliers, making them vulnerable to disruptions in any one point of the

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 supply chain. For example, a fire at a Vietnamese wood processing plant in 2019 led to
significant production delays and stock shortages.

Wood pellets from vietnam

 Complex product range: IKEA offers a vast array of products, each with its own unique
manufacturing process and requirements. This complexity can lead to bottlenecks in
production lines, particularly during peak seasons.
 Labor shortages: The ongoing global labor shortage has impacted IKEA's production
capacity in some regions. Finding and retaining skilled workers at its manufacturing
facilities can be challenging, leading to slower production times and potential delays.
4.1.2 Quality Control Issues:
 Large scale production: IKEA's high-volume production can sometimes lead to
inconsistencies in quality control. Defects or errors in manufacturing can cause product
recalls and damage the company's reputation.
 Global sourcing: With production facilities and suppliers spread across the globe,
maintaining consistent quality standards can be difficult. Ensuring effective
communication and coordination between different entities is crucial for upholding
quality across the board.
 Balancing cost and quality: IKEA's focus on affordability sometimes puts pressure on
quality standards. Finding the right balance between ensuring product quality and
keeping prices competitive is a constant challenge.
4.2 Supply Chain Issues:
4.2.1 Logistics Challenges:
 Transportation disruptions: Global shipping delays and port congestion have significantly
impacted IKEA's supply chain in recent years. Rising fuel costs and geopolitical tensions
can further exacerbate these challenges.
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  Inventory management: Accurately forecasting demand and managing inventory levels
can be challenging for a company with such a diverse product range. Overstocking leads
to storage costs, while understocking can result in lost sales and customer dissatisfaction.
 Sustainability considerations: Balancing efficiency with sustainability goals can be
complex in the logistics sector. Finding ways to reduce carbon emissions and minimize
environmental impact within the supply chain is an ongoing challenge.
4.2.2 Supplier Relations:
 Ethical sourcing: IKEA has faced criticism for its sourcing practices in the past,
particularly related to labor rights and deforestation. Ensuring ethical sourcing throughout
its complex supply chain is a continuous effort.
 Building strong partnerships: Developing long-term, collaborative relationships with key
suppliers is crucial for ensuring reliable and cost-effective sourcing. Effective
communication and transparency are key to building trust and mutual benefit.
 Technology integration: Implementing digital tools and data analytics can improve
supply chain transparency and optimize collaboration with suppliers. This can help
identify and address potential issues before they disrupt operations.
1. After-Sales Support and Customer Service: Providing customer support for product
assembly, returns, and repairs, ensuring customer satisfaction and building long-term
loyalty.

5. Recommendations for Improvement

5.1 Addressing Operational Challenges
5.2 Enhancing Supply Chain Efficiency

6. Conclusion
6.1 Summary of IKEA's Strategy and Operational Challenges
6.2 Potential Future Developments

IKEA in India: Decoding the Operational Magic

1. Introduction:
1.1 Background of IKEA:

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IKEA, the Swedish furniture giant, needs no introduction. Since its humble beginnings in 1943,
IKEA has revolutionized the furniture industry with its affordable, self-assembly flat-pack
furniture, and unique shopping experience. In 2012, IKEA entered India, a market brimming
with potential but presenting unique challenges.
1.2 Purpose of Activity Mapping:
Understanding IKEA's operational activity mapping in India is crucial for several reasons:
 Benchmarking: Analyze and learn from IKEA's best practices to improve operational efficiency
in the Indian market.
 Identifying Challenges: Uncover potential bottlenecks and inefficiencies to suggest targeted
improvements.
 Strategic Adaptation: Gain insights into how IKEA adapts its global strategy to the Indian
context.
2. Strategy Identification:
2.1 Overview of IKEA's Business Strategy:
IKEA's core strategy revolves around the "democratic design" concept, offering stylish,
functional furniture at affordable prices to the masses. This is achieved through:
 Cost leadership: Standardized designs, vertical integration, and global sourcing.
 Localization: Adapting product ranges and store layouts to Indian preferences.
 Sustainability: Focus on renewable materials, energy efficiency, and ethical sourcing.
 Customer experience: Self-service shopping, showroom inspiration, and readily available
customer support.
2.2 Core Competencies of IKEA:
 Efficient supply chain management: Optimizing procurement, production, and distribution for
cost and speed.
 Modular product design and flat-pack technology: Minimizing production, storage, and
transportation costs.
 Strong supplier relationships: Long-term partnerships ensure quality and cost stability.
 Expertise in logistics and inventory management: Optimizing product availability and minimizing
carrying costs.
2.3 Key Success Factors Supporting Strategy Execution:
 Talent acquisition and training: Building a strong team with expertise in Indian specifics.
 Cultural sensitivity: Adapting communication and marketing strategies to local preferences.
 Government regulations and compliance: Navigating complex bureaucratic processes.
 Effective communication and collaboration: Across departments and within the supply chain.
2.4 Strategy Map Development (Referencing Southwest Airlines example on page 47):

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Similar to Southwest's focus on low fares and passenger efficiency, IKEA's India strategy map
might highlight:
 Vision: Make comfortable and sustainable living affordable for everyone in India.
 Objectives: Increased market share, improved profitability, enhanced customer satisfaction, and
strengthened environmental sustainability.
 Measures: Revenue growth, customer loyalty metrics, store efficiency, energy consumption
reduction, and responsible sourcing practices.
 Initiatives: New store openings, product range localization, digital marketing campaigns,
employee training programs, and investments in renewable energy solutions.
3. Implementation of Strategy:
3.1 Operational Execution:
3.1.1 Supply Chain Management:
 Sourcing: Local procurement of raw materials and finished products wherever possible to reduce
costs and lead times.
 Production: Partnering with Indian manufacturers to cater to the local market while maintaining
global quality standards.
 Distribution: Efficient distribution network with strategically located warehouses for faster
delivery and reduced inventory costs.
3.1.2 Production Processes:
 Continuous improvement: Implementing Six Sigma and other lean manufacturing principles to
optimize production processes.
 Just-in-time production: Minimizing inventory holding costs by aligning production with actual
demand.
 Quality control: Strict quality checks throughout the production process to ensure customer
satisfaction.
3.1.3 Inventory Management:
 Advanced forecasting: Utilizing data analytics to predict demand patterns and optimize inventory
levels.
 Cross-docking: Efficiently transferring goods from suppliers to distribution centers without
storing them, reducing warehousing costs.
 Collaborative forecasting: Partnering with suppliers to improve demand forecasting accuracy.
3.2 Key Success Factors in Strategy Implementation:
 Leadership and communication: Strong leadership team with clear vision and effective
communication across departments.
 Performance management: Setting clear performance metrics and regularly tracking progress
against strategic goals.

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  Risk management: Proactive identification and mitigation of potential operational and supply
chain risks.
3.2.2 Technological Integration:
 Supply chain management systems: Implementing advanced software to track inventory,
shipments, and supplier performance.
 Customer relationship management: Utilizing CRM systems to enhance customer experience and
collect valuable data.
 E-commerce platform: Investing in a robust online platform to cater to the growing digital
customer base.
4. Operational and Supply Chain Issues:
4.1 Current Operational Challenges in IKEA:
4.1.1 Production Bottlenecks:
 Dependence on imported components can lead to delays and disruptions.
 Lack of skilled

1. Introduction

1.1 Brief Overview of IKEA

IKEA, founded in 1943 by Ingvar Kamprad in Sweden, has evolved into one of the world's most
prominent furniture retailers. Known for its affordable yet stylish furniture, home accessories, and
innovative retail concepts, IKEA has become a global household name. The company operates in over 50
countries, with a vast network of stores, distribution centers, and supply chain operations. IKEA's success
can be attributed not only to its distinctive product offerings but also to its efficient and effective
operations management strategy.

2. Background of IKEA

2.1 History and Evolution

IKEA's history and evolution are deeply rooted in the entrepreneurial spirit of its founder, Ingvar
Kamprad. Established in 1943 as a small mail-order business, IKEA initially sold a variety of
products, including pens, wallets, and stockings. The company's name is an acronym formed
from the initials of Kamprad's name, Elmtaryd (the farm where he grew up), and Agunnaryd (his
hometown in Småland, Sweden).

The turning point for IKEA came in the late 1940s when Kamprad began including furniture in
the product range. Recognizing the need for affordable yet well-designed furniture, he pioneered
the flat-pack, self-assembly concept. This innovation not only reduced production and

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transportation costs but also made it possible for customers to transport and assemble furniture
easily. The iconic IKEA catalog, first introduced in 1951, further fueled the company's growth
by reaching a wider audience and showcasing its diverse product offerings.

Over the decades, IKEA's commitment to innovation, sustainability, and cost-efficiency

propelled it into a global retail giant. The company's unique business model and emphasis on
democratic design – providing well-designed, functional, and affordable products for the many –
have reshaped the furniture retail landscape.

2.2 Global Presence

Today, IKEA stands as a truly global brand with a widespread presence. The company's
expansion beyond Sweden began in the 1960s, with the first store opening in Norway.
Subsequent decades saw IKEA establishing a strong foothold in Europe, North America, Asia,
and other regions. The global expansion was characterized by a commitment to adaptability –
tailoring product offerings and store formats to suit the cultural and market nuances of each
region.

As of [current year], IKEA operates in over 50 countries, with a network of more than 400
stores. The brand's international success is not limited to physical stores; it has also embraced e-
commerce to reach a broader customer base. The global presence of IKEA reflects its ability to
balance standardized product offerings with localized strategies, maintaining a consistent brand
identity while respecting diverse consumer preferences.

2.3 Mission and Values

At the core of IKEA's business philosophy are its mission and values, which guide decision-
making and operations:

Mission: IKEA's mission is to create a better everyday life for the many people by offering well-
designed, functional, and affordable home furnishing products. This mission emphasizes
inclusivity, aiming to cater to a broad customer base rather than a select few.

Values:
1. Togetherness and Enthusiasm: IKEA values collaboration and a positive spirit, both internally
among its employees and externally with customers and partners.

2. Cost-Consciousness: The company is committed to cost-efficiency to ensure that its products

remain affordable, aligning with the principle of providing value for money to customers.

3. Renew and Improve: IKEA embraces a culture of continuous improvement, seeking

innovative solutions and sustainable practices in its operations.

4. Caring for People and the Planet: Sustainability is a central value for IKEA. The company is
dedicated to minimizing its environmental impact, promoting responsible sourcing, and
contributing to social initiatives.

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